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Mind-forg'd manacles?

By Owen Paine on Monday February 8, 2010 10:48 AM

I hate to report this, but the Father Scruffle Smiff 'just walk away hoss' spiritual revival movement has not as yet really caught fire. Seems way too many folks are still not taking the rational option of strategic default.As an inquiringly-minded NYT columnist notes:

"Millions of American homeowners are “underwater,”... In Nevada, nearly two-thirds of homeowners are in this category. Yet most of them are dutifully continuing to pay their mortgages, despite substantial financial incentives for walking away from them"
Don't ya just hate to read stuff like that? What in hell explains this hypertrophied sucker play? I hope not some misplaced community enforced morality... but i dunno. And guess what In states with non-recourse mortgages, it's even worse, 'cause the rubes paid for a walk-away option. Again, the NYT:
"In a report prepared for the Department of Housing and Urban Development, Susan Woodward, an economist, estimated that home buyers in such states paid an extra $800 in closing costs for each $100,000 they borrowed. These fees are not made explicit to the borrower, but if they were, more people might be willing to default, figuring that they had paid for the right to do so."
That is, you have a blanket license at any time for any reason to default on a non-recourse loan. You paid for that right up front. "They" of course can shut off the damn credit spigot on ya for it... but that only means something if the spigot's presently turned on for you in the first place.

Speaking of hidebound prig-sticker morality, here's my idea of a real asswipe doing a no-harm no-foul flyby on this whole business. It's from the industrious quill of none other then Mr Mark Thoma of the Thomatic poisoning site 'Econo Mist View':

"I think that people in non-recourse states understood the option a bit differently... If medical costs wipe you out, if the demand for the widgets you produce falls permanently causing you to lose your job and also have trouble finding a new one, or if other things out of your control cause you to be unable to pay your mortgage, then you won't lose your car, furniture, heirlooms, etc. in a forced liquidation to pay of as much as possible of the remaining balance on the housing loan. Non-recourse protects you fro losing everything. But a change in the price itself wasn't part of the deal. You get to keep the upside, but have to eat the downside-that's how it worked and you knew that going in. At least, that's how I always understood the implicit deal (enforced in part by a fear of losing access to credit in the future, social norms, etc.).... Following this implicit rule lowers costs for everyone..."
What a goodie goodie dupe sap guff of a call that is. What a rubber hammer of pettifogging conformity. Mr Thoma... may you live forever... totally underwater.

Comments (22)


I'm just not sure I understand why renting substandard apartments from venal private landlords is so much better? It may be cheaper...and maybe that is enough, but private "apartment complexes" are mind-draining.

Absent a People's Workers' Committee Cooperative Housing Project (featuring the joys of concrete Stalinist high rise architecture), us weebles are damned if we do and damned if we don't.


"Walk away" to what, a tent in the woods? It's either hang on to what you got, or rent. I can see people paying a premium to stay in their homes rather than live in the overpriced noise hell that is an apartment complex.

Then there is the no walk no pay option that our landlord chose. After wallowing around in the gridlocked foreclosure process for eight months, she filed for bankruptcy protection on the day of the foreclosure auction, which again stalled the process. So now, as she approaches the one year mark of not paying anything to live in her house, she is possibly looking at another year of free living due to the backlogged bankruptcy courts. Knowing that it won't fetch half of what she borrowed, losing it slowly is a logical game plan of sorts, unless, of course, they bust her for the fraudulent loan application she submitted in the first place. But then, as a mortgage broker herself, she probably figured the feds weren't prosecuting fraud based on a system they themselves created.


bk anf sean

stick to the rational option paradigm
not the pinky shirt flapping nonsense
if you can rent comparable digs for less then your mortgage payment
look in to a switch out

of course nothing sez you walk away
till you're forced out of course

rentals ??
slumlords know that game
as a tenant
if you keep paying them
after they stop paying the bank
who's the bigger fool here ??


if it looks to be ten years underwater
AND lower relative rental payments to mortgage et al payments

if we all walked away we could rent each others houses ffrom the bank for less then the mortgage payments..for sure

apart from the slobbering
home sweet home
diggery doo


Homes are like cars in that they are both big ticket items that people use and abuse on a daily basis. So if people are not willing to walk away from their cars that have depreciated in value, then they should be equally unwilling to walk away from their homes that have depreciated in value -- unless of course they can no longer make the mortgage payments.

I suppose an argument can be made that most people expect their cars to drop in value, but very few of them expect this to happen to the value of their homes. But since there are no guarantees in life, then no one should think this way. Thus it's best that people view their homes as they are supposed to be viewed, as a form of shelter, not as a form of investment. Then they won't be so bummed out when their homes happen to drop in value. And if people want to invest in something, they should invest in their education, in their health, in their jobs, or in stocks and bonds.

The take home lesson in this is that people should never think of their home as an investment. Shelter, yes. Investment, no.


Let me give an example from the real world why I think the considerations involved are not so simple. Landlords often rent out a unit at a relatively attractive rate market wise and then, once the tenant is in and established, jack the rent up tremendously when the time comes to renew the lease.

When this happens, the "rational" choice is to move out, no harm no foul, no hit to your credit rating, and find a "comparable" unit elsewhere for a lesser price. Unfortunately, the difficulty of actually finding another unit and packing up and moving on short notice is often enough to dissuade tenants from pursuing this option. Very often people are stuck because they can't come up with a security deposit for a new unit even though they could afford to pay the increased rent. Landlords know this, which is why they play this game.

I can see a similar dynamic at play with homeowners, who will also have to consider the enormous disadvantages of renting over owning, the insecurity of knowing you can be evicted on termination of your lease, and dealing with the usual assorted landlord bullshit.

There are other considerations than the money angle.

I had almost as much aggravation from owning as I now do from renting. The main reason I owned a shack at one time, was the thought of retiring the debt by the time I retired, as I'm sure most homeowners figured back then. Seeing how that didn't work out, I'm now working the tenant angles to the best of my ability, which is getting to be interesting if not blissful.

Maybe social centers will take off here as they have in Italy, or some such version of autonomous zone communitarian living. I did that once long ago, too, and thoroughly enjoyed myself. Worked for food in the hippie cooperative grocery on ground floor, lounged around with the bluegrass musicians and alternative press on the second floor, and lived rent free (caretaker) on the third floor with a view of the sunset over the San Juan Islands.

The hippie commercial district surrounding us had two taverns, a coffee shop, and a big underground pizza joint with live music and dancing. There was even an outdoor smoking lounge next to the community garden.


"...substandard apartments from venal private landlords..."

"...private 'apartment complexes' are mind-draining. ..."

"..the overpriced noise hell that is an apartment complex. ..."

"Landlords often...jack the rent up tremendously when the time comes to renew the lease."

"...the enormous disadvantages of renting over owning...the usual assorted landlord bullshit...."

Did mortgage companies develop this "rentals-are-hellholes" line?

Is this how they got all those people who should've been renting to sign on the dotted line?

Our predatory bankers have caused all manner of economic chaos by issuing exploitative and usurious mortgages to boatloads of people who can't afford the payments, and then propagated the fraud all the way through the financial food chain, and...Beware of landlords?


I smell some ill-defined class dimension in all of this. Renting? Practically the same as being homeless, or at least living in a tent. These commenters seem to be envisioning decaying urban project towers, or something. I've no idea.

A sample of one and all that, but I've rented my whole life, and the world that these dudes imagine -- I haven't seen it. Sure there are asshole slumlords. There are asshole cardealers too, and (as has been abundantly attested) asshole mortgage swindlers.

But if you live in reality and you're underwater, you're a fool for hanging around. Get the fuck out already. As op says, there's strength in numbers, and it's one way, at least, to conjure a lot of rental options overnight.


I've lived in rented housing all my life -- never owned a house, never expect to or want to. It's been fine, and I've had a lot fewer hassles than the houseowners I know.


If there's an "ill-defined class dimension" to this argument, it's from people who've always been able to afford decent rental apartments and wonder what all the fuss about renting is about.

I don't know where this renter's paradise you speak of exists, but I am sure good apartments can always be rented for those with the money. Here in NY, most rental units that are even remotely affordable are substandard. "Slum" is a relative term, and has less to do with the price of the housing than the quality, as a one-bedroom apartment in a slum in NYC rents for $1,200 a month and more. To get something for less, you either have to get real lucky, or live in a total shithole.

Aside from rent gouging, illegal evictions, roach and rat infestation, failure to provide heat and hot water, noisy neighbors from hell who are never evicted so long as they pay the rent, lack of security, paper-thin walls, cheap carpeting (bad if you have asthma or chemical sensitivities), above the legal limits of formaldehyde, lead and other contaminants, failure to fix leaks, electrical problems, or address defective and dangerous conditions, building and electrical code violations, fire hazards, landlord harassment, landlords enjoying the free capital improvements from tenants fixing stuff on their own and then kicking them out, and a jazillion other problems, I suppose there is no substantial difference between renting and owning.

...except for the fact your rent keeps going up every year, and you receive no equity for the money you spend on rent. A mortgage payment, by contrast, will generally stay either at a fixed payment or within a narrow band for an ARM for its entire life. The house my father bought with a $250 a month mortgage in 1975 in NYC would rent for over $3,000 a month nowadays, and if he were still alive and had chosen to rent instead of own, he would have been driven out a long time ago by the cost. Of course, I am not saying in today's bubble market you will likely ever see those kinds of differences for a long time if at all but...

If we do in fact enter the period of hyperinflation some people are predicting, you'll be very sorry indeed you walked away from that fixed mortgage payment.


this tutorial
from the heart of a born yeoman
lacks one counter weight


if you live in a bad building
organize a rent strike

nyc has codes you know
ask doc smiff about ny landlord lashing
i suspect he can guide you on this


Sure, Sean, plenty of people should buy rather than rent. Did anyone say otherwise?

But I'm still trying to see your argument. Homeowners who owe more than the price of their homes should keep paying the mortgage because... hyperinflation? To avoid roaches? Because shitty apartments in NY rent for $1200/month (too low by half, I'd say)?

Sure rent payments can increase. And if you're underwater you're paying more per month than you would be if you were renting the same house. So...yeah.

There is no renter's paradise. There are better deals and worse deals, as with most things in our glorious free market. You can rent HOUSES, Sean, just like you can rent apartments in all-rental buildings, and condos from people who own units in condo buildings.

Your manifold and varied imaginings about the rental world -- asbestos ridden apartments managed by sadistic slumlords filled with noisy psychotic tenants on the one hand, high-end luxury apartments for the wealthy on the other (where I apparently live), and precious little in between -- corresponds to nothing I've ever seen. Certainly it's a poor reason to keep paying the mortgage if you owe more than your house is worth.


op, I spent years in the tenants rights movement, albeit in Westchester county where the rules aren't as strict as the city, so I know about "struggle" and I know about how bad rental housing can be. Outside of the city or county, they can simply evict anyone who raises a fuss, and courts usually side with landlords, so most people don't raise a fuss.

People are understandably terrified of being evicted or being homeless, as affordable housing of any quality is often rare. I am convinced that any meaningful struggle in this regard will have to be taken on a mass scale, and probably in collaboration with a broader struggle for liberty. We had our share of little victories in the day, and the fight was worth it, but overall, it is and always has been the landlord's game.

As an example, If you ever go to housing court over anything, your name is held in a nationwide database which is used by many landlords to blacklist "problem" tenants (Google "tenant blacklist"). They also check credit histories. I actually rent a house now, and have a pretty good deal, but that's besides the point. I live in a rare renter's market.

The very fact you have to organize to assert your rights, and landlords will be given every pass possible along the way, speaks volumes. Most people just don't have the time or the inclination for this kind of fight. For landlords, it's part of their job.


"I actually rent a house now, and have a pretty good deal, but that's besides the point"

really ???" besides the point "??...a renters maaket besides the point ???

that is precisely THE point
walkaway will create such a renters market
in its wake

" I spent years in the tenants rights movement"
helping folks like you
or "the down trodden"?

of course the law favors landlords it's their legal system their judges etc

struggle is rarely one dimensional as you clearly know from your years in Westchesters
sour grape vineyards

i like the notion of a black list for trouble making tenants
serves us right

such a list of job tusslers seems a natural also
in this internet era


really ???" besides the point "??...a renters maaket besides the point ???

that is precisely THE point
walkaway will create such a renters market
in its wake

What I mean by "renter's market" is one in which rents are relatively cheap compared to elsewhere due to low demand, not where it is cheaper to rent than own.

I see no reason to be optimistic that people walking away from their mortgaged homes will somehow create a renter's market (in the sense I'm using). If anything, the sudden upswing in demand created by so many people desperate for rentals will likely drive up local rents. You may say that the upswing in demand will be equally matched by an upswing in supply of rental units, but I doubt that will be the case. Many units will remain on the market in search of buyers, so there will be less units available to rent relative to demand then there were before. Rents tend to be sticky upwards, as landlords are loath to lower rents even when lack of demand warrants it. The fact that the new rentals will be owned by banks who can and will collaborate together will mean there will likely be warehousing to keep supply low and thus rents artificially, maybe even dramatically, higher than they were before. Even a very slight shortage of 5 percent of demand due to warehousing could cause a massive surge in rents which will more than compensate the banks for the "losses" they have suffered, which will likely be covered by a taxpayer bailout anyway.

At the end of the day, renters are more desperate to have a roof over their heads than banks are to find renters. People will pay what they have to avoid homelessness, and if they don't, the banks can afford to wait until they are desperate enough to do so.

helping folks like you
or "the down trodden"?

Helping anyone who needed and wanted our help. Why make the distinction? We mostly worked with low income people, but many of the abuses I've mentioned I've seen in middle-income rentals as well.

struggle is rarely one dimensional as you clearly know from your years in Westchesters
sour grape vineyards

I think you're missing the point. We were discussing the merits of owning versus renting. If you have to spend months organizing your neighbors in a struggle to get the landlord to provide heat and hot water, that is hardly a plus for renting.

i like the notion of a black list for trouble making tenants
serves us right

such a list of job tusslers seems a natural also
in this internet era

Don't underestimate the power of blacklists. They are a powerful tool of the elite and always have been. There is no organized left in this country, no large scale organized tenants movement, and there will likely be no organized "walk-away" movement either. Alone, as individuals, we have very little power and can be squashed like mosquitos buzzing in the ears of our masters



a giant landlord-banker lock out eh ??
now that might be a tipping point
if walk away tripped that wire

maybe you see no opporutinty here
i do

but hey
i guess it keeps u sane


The banksters aren't omnipotent, Sean. From their perspective, a mass walkout would be a disaster.

From the article MJS links at the top of the blog:

The average underwater borrower today owes about $70,000 more than their home is actually worth, according to CoreLogic. Since 10.7 million mortgages are currently underwater, the banking system could see losses of up to $749 billion from problem mortgages—and the number gets much bigger if home prices decline further. Banks have probably already booked some of those losses, but it's still a huge hole, one many banks will not be able to fill. The entire U.S. banking system only has about $1.25 trillion to absorb losses ($11.58 trillion in assets minus $10.33 trillion in liabilities).

That, and you still think the banks can afford to wait? After seeing around half of their assets (on average!) go up in flames? If their overwhelming driving purpose were to fuck over their customers at all possible costs, maybe. But they're just busineses, Sean, and so we know that all they want to do is stay afloat and make money.

Also, you say this--

We were discussing the merits of owning versus renting.

--though nobody but you has been discussing the merits of owning vs. renting. The issue your first comment raised was whether the underwater should keep paying their mortgages when the overwhelmingly rational choice is default. Saying that people should pay a "premium" because renting sucks just ensures that people will pay that premium. Which is fine if you're a creditor, I guess.

And you keep saying stuff like this too:

If you have to spend months organizing your neighbors in a struggle to get the landlord to provide heat and hot water, that is hardly a plus for renting.

If that's true, then so is this: If you owe the bank more money than your house is worth, because the bank perpetrated massive fraud in order to inflate a housing bubble engineered to transfer your wealth into their coffers, that is hardly a plus for mortgaging.

For some people anyway. Other people should buy; other people aren't underwater. Also some people should rent and not buy. Many housing markets have plenty of rental properties that are in good repair and have good heat and lack asbestos. There will be more such properties in the event of a mass walkout, which will leave many banks on life support and desperate for any means of improving their cash flow.

To recap: The average underwater homeowner owes $70,000 more than their house is worth. You think that average homeowner should consider eating the losses because landlords are evil and exploitative; s/he is somehow better off with the fraudulent mortgage companies. Or maybe not -- as soon as those companies become landlords they'll morph into evil and irrationally omnipotent adversaries as well.

You think the fact that tenants might have to struggle counts against renting. But the clear fact is that you always have to fight for your interests, because our current lot of head boys are always going to tread on them if they can. That's just as true for mortgage payers as renters -- even more so. The head boys want to appear omnipotent and invincible--they buy oceans of propaganda to do just that. Each has spent spent a fortune to teach passivity and sow division among all of us.


P.S. Rental prices are just linked to housing prices. They're not some mysterious entity floating above the fray. If housing prices fall, rental rates will also fall. Whether they've tended to stick in the past or not -- the past in which we were on the upside of a bubble and housing prices were forever increasing -- is beside the point.

(Another retreat to sample-of-one fallacy: My friend in increasingly underwater Columbia SC has a lease up for renewal, and they're offering a substantial rent decrease. He's leaving anyway, because there are many even better options elsewhere.)

In other words, you're essentially predicting banks will warehouse in case of default to prop up HOUSING prices. The world is your laboratory. Housing prices are in decline most everywhere and we've had plenty of defaults already.

Anybody warehousing yet to increase demand? I ask the question in all honesty.

But if not now, why ever?


PPS. Just for example (from Calculated Risk):


Also, rental rates are far less susceptible to bubble enthusiasm than housing rates. Which is what makes this graph fun:


Rental rates actually held steady while housing prices were skyrocketing.

Everything says that your warehousing scenario is fantasy.

Rental rates are falling and they're much harder to inflate than housing prices. A mass walkout just diversifies the rental options.


nice points eugy

I like eugyppius's comments in this thread.

I understand where Sean is coming from, and not just because I share a first name with him. His posts remind me of my family's "wisdom," which pushed me strongly toward buying a house in 2003. I still live in that house, and I'm not underwater/upside-down... yet.

However, when I look backward on my life I see that home "ownership" has more headaches than I care to handle. The biggest one, of course, is being tied down. It is a hassle to sell a house unless you happen to live in a magical place where buyer demand exceeds seller supply by a large margin. And even if that disparity exists, house sale prices still can be on a downward slide, making the sale perilous and perhaps non-productive from an income point of view.

Staying in a house to avoid the "risks" of renting, that just makes no sense to me at all

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